Value-based health care reform

By Christopher Guadagnino, Ph.D.

In the wake of a bruising battle to forestall draconian Medicare reimbursement cuts to physicians, Medicare spending remains at the center of the federal budget debate, with alarming growth statistics driving legislators to ponder radical reform proposals for Medicare and the U.S. health care system.

The rate of growth in health care costs is the single most important factor influencing the federal government’s long-term fiscal balance, according to Congressional Budget Office Director Peter Orszag, who joins health care economists and industry experts in warning legislators that cost-cutting decisions alone are insufficient and must be accompanied by more fundamental health care reform.

Health care economists say that at least one-third of health care spending in the U.S. is unnecessary and cannot be shown to improve health outcomes, while the spending growth of federal health programs is putting other important national priorities at risk – not least of which is the search for ways to bring affordable health insurance to the nation’s 47 million uninsured. That is the situation that Congress and a new president face next year, while Congress is dedicating much of the rest of this year to hearings and summits to determine how best to go about healing an ailing health care system.

Health reform advocates agree that rising health care costs are linked to growth in the number of uninsured, and that health insurance expansion must include efforts to address rising costs. Advocates are pushing several approaches to tackle the problem: consumer-driven strategies (e.g., quality and cost transparency impose market discipline on providers through consumer choices), government-driven strategies (e.g., imposing benefit mandates and uniform regulation across health insurers, measuring provider performance, and overseeing research on cost and quality), and provider-driven strategies (e.g., adopting health information technology, developing and implementing best practices, changing practice patterns, and ramping up disease prevention).

Medicare payment reform mechanisms are also on the table, with the expectation that the commercial insurance market would eventually adopt them. Noting that individual physicians are not rewarded or penalized for their own utilization or performance, advocates propose replacing the Medicare fee-for-service reimbursement model with medical home capitation, bundled prospective payments to physicians akin to hospital DRGs, or capitated episode-of-care payments shared among all caregivers of a given patient.

The health care overhaul debate appears to have moved beyond how to expand health insurance to cover all Americans and how to reduce health care spending, as two separate questions. The focus now is working out details of how to structure incentives appropriately to optimize cost, quality and access. Having health insurance is a prerequisite for access to timely health care, but it is not a guarantee, notes American Medical Association (AMA) President Nancy H. Nielsen, M.D., pointing to new health insurance mandates and state subsidies in Massachusetts which have led to unexpectedly large cost overruns and newly-insured patients flooding physicians’ offices, forcing physicians either to turn down patients or put them on waiting lists.

Key stakeholders agree that expanding health insurance and reducing health care spending cannot be achieved in a sustainable way without extracting greater value from health care spending. Promoters of this concept are calling for more value-based research and dissemination of evidence-based standards that weigh the comparative effectiveness and cost of health care interventions.

Another consensus appears to be that a comprehensive blend of strategies is needed to achieve sustainable health system reform. In its proposal to cover the uninsured, for example, the AMA says it advocates a clear role for government in financing and regulating health insurance coverage, while it also advocates several provider-driven initiatives, as well as expanded consumer choice to fuel market experimentation with plan benefit design. The AMA promotes four broad strategies to contain health care costs: reduce the burden of preventable disease, make health care delivery more efficient, reduce nonclinical health system costs, and promote value-based decision-making. The American College of Physicians (ACP) similarly enlists a blend of reform mechanisms in its proposals, including the creation of a national entity for value-based research to coordinate, support and disseminate cost-effectiveness standards for therapies, procedures, drugs, devices and clinical management strategies.

Legislators are appraising a variety of reforms to address health care cost containment, affordable health insurance expansion and value-based health care utilization. The Senate Finance Committee, for example, convened a bipartisan symposium in mid-June called, “Prepare for Launch Health Reform Summit,” which it billed as part of its year-long series of hearings and roundtables to prepare for committee action on health reform next year. Health care economists, industry experts and government representatives are advocating various reform mechanisms – including competition, transparency, prevention, efficiency and comparative cost-effectiveness. These proposals will shape Congress’s health care overhaul debate and will have significant impacts on physicians and the way they practice medicine.

Approaches and Trade-Offs

Misaligned payment, disparate health care costs and an overabundance of untested procedures have jeopardized the U.S. health care delivery system, which spends more than $700 billion each year on medical care – representing one-third of procedures that physicians perform – that fails to improve a patient’s health, Orszag told the Senate Finance Committee at the Prepare for Launch summit. He based those estimates on studies documenting significant geographic variation in Medicare spending without outcome improvement for higher-cost treatments. “Overuse of supply-sensitive services and differences in social norms among local physicians seem to drive regional approaches in the use of innovations and treatments,” said Orszag.

Several dynamics fuel the problem of runaway health care spending, according to Paul B. Ginsburg, Ph.D., president of the Center for Studying Health System Change, in testimony delivered to the Senate Finance Committee in early June. There is little research on comparative effectiveness, and rapid technology diffusion is extended beyond patients who are most likely to benefit from it. Compounding that evidence gap is the cultural obstacle among Americans that insured people should get all the medical care they want, regardless of cost – which works against attempts to discourage the development of treatments with small or uncertain benefits. Providers have exploited intense competition for niche specialty services and have avoided less profitable services, leading to overpayment for some services and underpayment for others. The fragmented payment system limits physicians’ productivity improvements, as each physician is paid on the basis of services he or she provides rather than on what is done by all providers to address a patient’s medical condition. The reliance on third-party payment blunts consumer incentives to economize on the use of care.

Ginsburg outlined challenges faced by various reform proposals. Shifting away from employer-based to individual coverage health insurance is not attractive because individual underwriting raises costs. Regional health insurance exchanges to create more attractive risk-pooling mechanisms for the individual health insurance market is a promising but largely untested concept, and could perhaps be tested with those without access to employer-based health insurance. Federal support for an information technology infrastructure, and an expanded role for disease management in Medicare and Medicaid may improve quality and lower costs, but not commensurate with the magnitude of the cost problem.

That latter approach was championed by Intel Corporation Chairman Craig R. Barrett, who told the Finance Committee that, while government has to help lead the way toward systemic transformation, employers and the private sector are more nimble and able to lead the way toward new care paradigms and new financing alternatives, and have the purchasing power to “pre-empt” the system and effect change. Central to Barrett’s recommendations is the use of information technology to promote patient-centered care, safety, efficiency and follow-up, including electronic prescribing, electronic health records, portable health records, and remote diagnostics and monitoring technologies focused on services to the elderly and chronically ill. Barrett also spoke of the need to “transition from the fee-for-service treadmill” to a reimbursement system that rewards a more patient-centered approach via rewards for the use of IT to provide better communication, care and follow-up. “Through coordinated care provided by professionals combined with the expanding technology alternatives being proposed in this Congress, we can start to see a reversal in skyrocketing medical costs,” said Barrett.

Increasing transparency within an employer-based health insurance model faces major limitations as a cost-saving mechanism, according to CBO Director Orszag. Allowing workers to see how much of their income is being reduced for employers’ health plan premium contributions and what the money is paying for might reduce the range of prices for health care services, he said, but they remain insulated from the full price of their health care, which limits their incentive to compare prices. Awareness of prices will also make little difference in emergencies or in the relatively small number of cases that account for a disproportionate share of overall health spending, he added.

A key engine of meaningful reform, according to Ginsburg, is more efficient and equitable clinical rationing with a broader and complementary array of cost containment tools using evidence-based practice guidelines and institutionalized technology assessment to inform benefit package design, offering broad patient and provider choices coupled with extensive clinical value information and higher cost-sharing when the values are small.

No single approach can control health care spending growth, said Ginsburg, who recommended implementing a range of interventions by the public and private sectors, including what he called “demand-side” options – e.g., increased patient cost-sharing at the point of service, changing the tax treatment of health insurance to grow the individual health insurance market, and expanding provider quality reporting to Medicare for more robust transparency initiatives; and “supply-side” options – e.g., revising Medicare’s payment structures to better reflect relative costs; replacing Medicare’s fee-for-service payment structure with per-episode payment that includes all providers in an episode of care; paying for chronic disease management, including care coordination, on a capitated basis; and expanding “high-performance” physician networks and new pay-for-performance models.

“There is much we do not know about how to do effective clinical value rationing at the moment,” Ginsburg told the committee. “Estimates of the fraction of physicians’ care decisions that are supported by unambiguous clinical trial evidence range from 11 percent to 65 percent, depending on specialty and care setting,” he added.

CBO Director Orszag recommended a combination of aggressively promulgated comparative effectiveness standards backed by financial incentives for physicians to use them. Generating more information about the relative effectiveness of medical treatments, he said, would offer a basis for ensuring that future technologies and existing costly services are used only when they are clinically superior to those of other, cheaper services. He noted that the CBO plans to release two reports on health policy late this year, one presenting budget estimates for several specific policy options, and the other addressing critical topics related to proposals to make major changes in the health care system, said Orszag.

The value-based theme was echoed by Ben S. Bernanke, chairman of the Federal Reserve Board, speaking to the Senate Finance Committee at the Prepare for Launch summit. The challenge of health system reform, he said, is not simply to lower costs, but to “get our money’s worth,” by simultaneously addressing the challenges of access, cost and quality with an eclectic set of reforms. For example, expanding access to health care – whether through mandating or strongly incentivizing enrollment in health insurance, imposing coverage mandates on insurers, or subsidizing coverage for low-income people who are not covered by Medicaid – would improve health outcomes, but almost certainly raise financial costs, Bernanke said. Increasing the quality of health care –e.g., increased patient screening – could also result in higher total health care spending, he noted.

“At the heart of the debate are the fundamental social questions of how we determine when various medical services are worth their cost and how we measure and reward good performance by providers,” Bernanke concluded, adding that good clinical and cost-effectiveness information and appropriate incentives are necessary to allocate resources efficiently.

Physician Proposals

Both the AMA and ACP are advocating a comprehensive set of reforms incorporating a blend of consumer-, government-, and provider-driven strategies.

Through its “Voice for the Uninsured” campaign, the AMA is promoting a three-part proposal to cover the uninsured that shifts government spending toward people with lower incomes; expands insurance opportunities to those without employer-based insurance; gives patients more control over health care spending; and reforms health insurance market regulations to protect vulnerable populations without unduly driving up premiums, while fostering market experimentation to find the most attractive combinations of plan benefits, cost-sharing and premiums.

The proposal entails three specific reforms:

· Shifting some or all of the government’s employee income tax break on job-based insurance – which the AMA says is well over $125 billion each year – to tax credits or vouchers for lower-income individuals to obtain health insurance, with the subsidies being more generous at lower income levels.

· Allowing individuals to use the tax credits or vouchers to help pay for premiums of any available insurance, whether offered through a job, another arrangement or the open market. As with current job-based insurance today, health plans would still have to meet federal guidelines for covered benefits, but people would have greater say in what types of benefits and plan features they value, thereby stimulating the individual health insurance market and compelling insurers to offer better, more affordable coverage options.

· Streamlining health insurance market regulations to permit market experimentation to find the most attractive combinations of plan benefits; and to include protections for high-risk patients – such as guarantees that they will not lose coverage or be singled out for premium hikes due to changes in health status, and additional targeted government subsidies that allow insurers to keep premiums down in the regular market. People who are uninsured despite being able to afford coverage should face tax implications.

How these proposals would impact physicians is not known, “but we have to move in that direction, away from the tax exclusion of employer-based health insurance,” says Nielsen. More choice for consumers might drive robust marketplace competition among health plans and increase physicians’ contracting leverage, for example, while a greater number of health plan options may either lead to increased administrative burdens on physicians, or to stronger incentives among health plans to consolidate claims processing functions.

Noting that no health insurance reform proposal would be complete without giving serious consideration to managing health care costs, the AMA maintains that the ultimate public policy goal is not cost-reduction per se, but achieving better value for health care spending – i.e., improved clinical outcomes, quality, and/or patient satisfaction per dollar spent, according to policy approved by its Council on Medical Service last year.

Given that rising health care costs have been fueled by increased prevalence of preventable chronic disease, clinical risk factors, unhealthy behaviors, major inefficiencies in health care system – including overuse and underuse of services, and excessive non-clinical costs, the AMA proposes four parallel strategies to address rising health care costs: reducing the burden of preventable disease, making health care delivery more efficient, reducing nonclinical health system costs, and promoting value-based decision-making.

The most promising policy interventions identified by the AMA Council include the following:

· Promote patient lifestyle counseling through adequate insurance payment and inclusion in quality measurement and pay-for-performance initiatives.

· Support comparative cost-effectiveness research, giving funding priority to medical research that uses both cost and clinical evaluation criteria, and disseminating findings to physicians, patients and other decision-makers.

· Continue development of health information technology to automatically provide relevant, timely and actionable information, e.g., clinical guidelines and protocols, cost-effectiveness information, quality measurement and pay-for-performance criteria, patient-specific medical and insurance information, prompts for lifestyle counseling and care management, and alerts to flag and avert medical errors.

· Use clinical performance and quality measurement to improve efficiency. Encourage development and adoption of measures aimed at reducing overuse of unwarranted services and increasing use of recommended services known to yield cost savings.

· Encourage use of targeted benefit design by insurers, e.g., reducing or waiving patient cost-sharing for chronic illness medications, particularly when patient noncompliance poses a high risk of adverse clinical outcome and/or high medical costs.

· Support medical care, insurance coverage and public health initiatives targeted toward underserved populations in order to achieve greater overall impact.

· Build broad coalitions of stakeholders, recognizing that confronting endemic problems such as obesity and tobacco use will require societal change and collaboration within and outside the health care system.

· Support ongoing analysis of non-clinical activities in order to reduce costs that do not add value to patient care.

Those proposed interventions emphasize the central role that physicians play in addressing rising costs and improving value for health care spending, the Council noted, as they would shift resources toward preventive services, increase the availability of both clinical and cost information needed to make cost-effective decisions, and employ incentives to make value-based decisions. Important synergies exist among the proposed interventions, as useful cost-effectiveness information disseminated through health information technology could support physicians in providing personalized lifestyle counseling to patients, particularly if payment reform, performance measurement, and complementary patient support also promote lifestyle counseling, the Council added.

The Council also noted that a fundamental restructuring of health care delivery and reimbursement is being promoted by four national medical societies – the American Academy of Family Physicians, American Academy of Pediatrics, American College of Physicians, and American Osteopathic Association – based on a patient-centered medical home approach, whereby each patient has an ongoing relationship with a personal physician trained to ensure continuous, comprehensive care for all stages of life and across the entire health care system. The approach features a central role for health information technology, evidence-based medicine, clinical decision-support tools and ongoing quality improvement efforts, while payment reform would reflect the added value of activities that fall outside of face-to-face patient visits, including coordination among providers and secure e-mail and telephone consultation.

Nielsen says the AMA supports the medical home model, as well as other payment reform models – such as testing bundled payment for all services around a hospitalization for select conditions, as recommended by the Medicare Payment Advisory Commission (MedPAC). Such new models, the AMA Council said, would reward greater collaboration among physicians, hospitals and other stakeholders for innovating cost-effective approaches to care that meet the patient’s overall health care needs, including preventive care, acute treatment, chronic disease management, behavioral change, education and wellness promotion.

But Nielsen cautions that “there has not been enough discussion yet to know the consequences of alternative payment reforms. We need to see how they work.” She says they should continue to be implemented incrementally as pilot programs to resolve design and implementation issues.

Another MedPAC proposal – to apply budget-neutral Medicare bonus payments for primary care clinicians – causes the AMA some concern. “We are all for coordination of care, but redistributing financing for it is a different conversation,” says Nielsen. The American College of Surgeons and 13 other specialty societies flatly oppose the proposal and, in a letter sent to MedPAC and legislators this May, expressed concern that the policy’s requirement to cut reimbursement for surgical services could have negatively impact an already eroding specialty physician workforce and jeopardize patient access to surgical care.

The ACP has its own set of proposals to expand coverage – as outlined in its policy monograph, Achieving Affordable Health Insurance Coverage for All Within Seven Years: A Proposal from America’s Internists – and it believes that health insurance reform must be done in concert with changes in health care financing and delivery to improve outcomes and efficiency of care, such as a risk-adjusted care coordination embodied by the patient-centered medical home model. “There are strong data that primary care is the basis of a well-functioning health care system,” says J. Fred Ralston, Jr., M.D., who notes that effective care – e.g., prevention, monitoring and follow-up – requires coordinating a lot of ongoing activity outside of the physician office. “We think more competitiveness and transparency is the most effective approach to reform – if individuals had more opportunity to shop for their health care choices. Right now, the payment levels don’t support the level of practice that primary care physicians would like to offer,” says Ralston.

Under the ACP’s proposals, everyone who needs coverage but does not have access through their employer would have access to a subsidized health insurance program, either through expanded Medicaid eligibility, refundable and sliding scale tax credits to uninsured workers, or state purchasing group arrangements modeled after the Federal Employees Health Benefits Program. Every participating health plan would be required to offer a benchmarked package of benefits, including preventive services, and would be required to agree to uniform new federal rules on risk-rating and renewability. Purchasing groups would give individuals the collective buying power that is now available only to large groups, and individuals would have a greater choice of health plans and more continuity of care than they do currently. Opt-outs would be discouraged by individual or employer mandates to encourage participation in the national and/or state-based health plans, or by automatic enrollment in publicly funded plans.

Comparative Effectiveness Information

An essential feature for a high-quality and efficient health care system is improved availability of comparative effectiveness information – the evaluation of the relative clinical effectiveness, safety and cost of two or more medical services, drugs, devices, therapies, or procedures used to treat the same condition. That premise is supported by a broad array of entities including the Institute of Medicine, MedPAC, the Congressional Budget Office, the Blue Cross Blue Shield Association, the American Health Insurance Plans, the National Business Group on Health, and physician groups including the AMA and ACP.

Congressional bills have been introduced to advance the comparative effectiveness concept. A House bill introduced in May 2007 by Reps. Tom Allen (D-ME) and Jo Ann Emerson (R-MO) would significantly increase funding – from the current $15 million per year to $3 billion over five years – for comparative effectiveness research sponsored by the Agency for Healthcare Research and Quality (AHRQ), and would require all payers, including government, insurers and self-funded plans, to pay a share of the funding based on their number of covered lives. A Senate bill introduced this March by Senate Finance Committee Chairman Max Baucus (D-MT) and Budget Committee Chairman Kent Conrad (D-ND) would create a private, nonprofit institute to set a national agenda of comparative effectiveness research priorities, develop methodological standards, and contract with AHRQ and other approved federal and private entities to conduct the research, which would then be peer-reviewed and publicly disseminated to patients and providers. Neither legislation specifies that costs be included in research studies, although they could be included down the road.

People believe high-cost care equals high-quality care, despite evidence to the contrary, and they undervalue disease prevention and overvalue disease “heroics” or intense medical interventions to reverse disease, according to testimony delivered last month to the House Budget Committee by Jeanne M. Lambrew, Ph.D., associate professor in the Lyndon B. Johnson School of Public Affairs, University of Texas at Austin, and Senior Fellow in the Center for American Progress Action Fund. In the absence of evidence on benefits and costs, she said, people and providers often assume that more is better even when it may be wasteful or harmful. What is needed, said Lambrew, is a strong infrastructure of standards for high-quality, cost-effective care, networks for transferring these standards throughout the system, and policies for their adoption.

The U.S. expends insufficient funds to develop comparative effectiveness data and there is no coordination or prioritization of current efforts in either the public or private sector to help produce comparative effectiveness information that would provide the greatest health care impact, according to the ACP. The limited amount of comparative effectiveness data that is produced is done piecemeal, with little or no rational prioritization on the basis of the benefits it would provide to individual patients and the general population, little coordination or harmonization of evaluative efforts, and uneven methodological standards for evaluating and reporting the results to clinicians and patients, the ACP notes.

That lack of available information on the relative clinical effectiveness and costs of different treatments for the same condition creates critically important limitations for the clinical decision-making process, according to the ACP. Each day, in the privacy of the examination room, patients are treated for conditions for which there are numerous treatment options, including treatment for common conditions such as intermittent heartburn, more serious chronic conditions such as high blood pressure or diabetes, and immediate life-and-death issues such as choosing the best approach for the treatment of acute coronary syndrome or an aortic dissection, the ACP notes. Absent increased investment to develop evidence about comparative effectiveness, the ACP adds, the nation is at serious risk of producing more and more innovations without an effective and efficient means of incorporating them into a health care system with limited resources.

The ACP is promoting a detailed proposal to develop and distribute information to physicians, health care payors and patients regarding the comparative effectiveness of currently available health care interventions, through an adequately funded, government-supported national entity to prioritize, sponsor, and/or produce this comparative information. Interventions would be weighed with outcomes metrics such as life years gained, cases of disease prevented, improvement in functional status, or health-related quality-adjusted life years.

The entity should be protected from undue government and private sector influence, have transparent proceedings and reports, include extensive stakeholder involvement, and ensure the general distribution of findings to all interested parties. The entity would review and synthesize existing evidence and initiate new research in priority areas where essential evidence does not exist.

Medicare has attempted on two occasions to pass language through the rule-making process to support the use of cost-effectiveness data as a factor in the making of coverage decisions, but Medicare discontinued its efforts on both occasions after many stakeholders expressed strong opposition, objecting that it would be the forerunner to the use of rationing under Medicare and could inappropriately limit access to services, the ACP notes. Other obstacles to implementing comparative cost-effectiveness information include concern that it may lead to an increase in costly litigation by patients, questions about soundness of methodology and trustworthiness of data, and concerns that it may inhibit technical innovation in health care (particularly of costly interventions), the ACP adds.

To mitigate some of these concerns, the ACP recommends that the comparative effectiveness entity include a panel of stakeholders and experts in the area of cost-effectiveness analyses to reconcile disparate estimates of cost effectiveness and to suggest procedures for potential use by stakeholders who plan to consider cost-effectiveness information in clinical, coverage, purchasing, and pricing decisions. Those recommendations should recognize that cost-effectiveness analysis is only a tool to be used in coverage and pricing decisions and cannot be the sole basis for making resource allocation decisions. As part of the decision-making process within the doctor–patient relationship, the ACP notes, cost-effectiveness information must take into account the unique needs and values of each patient and the clinical opinion of the treating physician, while also recognizing the limited nature of health care resources available to society in general.

Faced with the substantial, unsustainable growth in health care expenditures, almost all stakeholders have expressed a renewed interest in increasing the availability of cost-effectiveness information, and making valid and reliable cost-effectiveness data from a trusted source available to all stakeholders would ultimately result in a better and more socially equitable means of controlling overall costs than the current approach of limiting access to care for some of the most vulnerable, or using cost information in the decision-making process in a nontransparent manner that doesn’t consider effectiveness, the ACP maintains.

The ACP further recommends that all health care payors, including Medicare, other government programs, private sector entities, and the individual health care consumer, use both comparative clinical and cost-effectiveness information as factors to be explicitly considered in their evaluation of a clinical intervention. Cost should never be used as the sole criterion, and should be considered along with the explicit, transparent consideration of the comparative effectiveness of the intervention.

Ensuring that physicians, payors and patients adhere to proven standards is a remaining challenge, according to Lambrew. Misaligned financial incentives for providers and patients limit any impact of comparative cost-effectiveness data, she said, because value is rarely taken into account when determining whether and what a provider gets paid, or what patients pay in cost sharing. Provider payment rates usually only account for a service’s cost, not its benefit, promoting high-cost health care irrespective of its merit, she noted. For example, there is little evidence supporting the use of CT scans for management of heart disease, yet their use – and thus costs – is rapidly increasing, she said. Congress should tie the use of value-oriented standards to Medicare payment reform, she added, such as adopting successful pay-for-performance models, creating bundled payments across providers and/or services, and adjusting patient cost sharing to promote high-value care and discourage low-value care.

Nielsen agrees that more clinical and cost-effectiveness information is needed, and policy released this June by the AMA’s Council on Medical Service promotes physician access to the best effectiveness and cost information about interventions to guide value-based decision-making. But whether government and insurers should reward or penalize physicians based on how they use the information “needs a different conversation,” Nielsen says. “The value equation must also include patient preference,” says Nielsen. “They may say no to a recommended therapy, and all must share equal responsibility that the agreed upon course of treatment is a compromise,” she adds. Just the creation of a body of cost-effectiveness information is sufficient to influence physicians’ practice patterns, Nielsen believes.

“The key for a value-based initiative to work,” says Ralston, “is for patients to have access to someone who sees the big picture – a trusted primary care physician with point-of-care information about the appropriate diagnostic services,” and not a specialist who has the incentive to perform high numbers of procedures, Ralston argues. The ideal system would also have financial incentives aligned, e.g., charging patients higher co-pays for interventions shown to have lower cost-effectiveness value, while reimbursing physicians and nurse educators more to take the time to offer the cost-effectiveness data to patients, Ralston adds.